HP takes $8.8 billion charge saying Autonomy fabricated finances

Hewlett-Packard Co. accused Autonomy Corp., the software maker it bought last year, of a broad range of financial falsehoods resulting in an $8.8 billion writedown, adding to the challenges facing Chief Executive Officer Meg Whitman in the midst of a multiyear turnaround. Shares plunged.

More than $5 billion of the charge relates to accounting missteps, including improperly categorized hardware, Hewlett-Packard said. The rest is linked to Hewlett-Packard’s share value and expectations that the deal won’t meet expectations, said the company, which also forecast fiscal first-quarter profit that missed analysts’ estimates.

“Some former members of Autonomy’s management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy’s acquisition,” Hewlett-Packard said today in a statement. Autonomy managers denied the allegations.

The charge is another setback for Hewlett-Packard, which is already buffeted by management turmoil and slowdowns in its personal-computer, printer and technology-services businesses. The allegations, which didn’t emerge until half a year after the deal closed, call into question the company’s dealmaking diligence and validate concerns that Autonomy was overpriced.

“This is going to test investors’ patience, and the stock is going to continue to struggle,” Brian White, an analyst at Topeka Capital Markets Inc., said in an interview on Bloomberg Radio. “This just adds fuel to the fire in that investors have been very concerned about the company’s fundamental performance, and now you’ve got improprieties in a company that you acquired that everyone was upset you acquired anyway.”

‘Late’ Findings

Former CEO Leo Apotheker, 59, agreed to buy Autonomy to diversify away from hardware and expand in software for corporations. Apotheker left in 2011 after less than a year on the job following repeated strategy shifts and forecast cuts. Whitman, 56, and Chairman Ray Lane were on the board when it signed off on the deal, and the company may have taken too long to uncover the financial missteps, said George O’Connor, an analyst at Panmure Gordon & Co.

“It seems very late in the day that HP would find accounting irregularities,” he said.

The shares of Palo Alto, California-based Hewlett-Packard fell 12 percent to $11.67 at 1:48 p.m. in New York, declining to the lowest price since October 2002. Through yesterday, the stock had dropped 48 percent this year.